Am I doing this overpayment thing right?

Beki88

I'm currently on a joint mortgage from buying my council house with my now ex-husband. Although it's joint I'm making the full payment each month and have been for a while. It's in our divorce agreement that he stays on the mortgage until I can financially afford to have it put solely in my name on the basis I continue with the payments (he also gets a small pay out once my daughter is 18).
Thanks to my ill health I stopped working and I'm now in receipt of PIP. Due to this it's not enough income to satisfy Nationwide I can take the mortgage on myself even though I've been making the payments myself for the last 6 years so feel a bit of a mortgage prisoner. Each month I am able to pay extra on the mortgage as when it was fixed in 2021 the interest rates were really low so I just kept paying at the old repayment amount.
Right now my payments are supposed to be £225 but I have been paying £300 each month so £75 overpayment. I've just been looking online and noticed that any overpayment less than £500 means my payments will be reduced at the next change eg when the fixed deal ends which I think is next April. From reading on here this isn't the best way? I plan to still keep my payments the same although I know the overpayment amount won't be as much due to the increased rates. Am I making it harder on myself this way? I looked to see if I could get my overpayments back and then make multiple £500 over payments to lower the term but as my mortgage was taken out after March 2010 it's not eligible for that. Am I better stopping the over payment for now, but putting the £75 extra a month into a savings account until I have enough to meet the £500? What will be better for me taking the mortgage over myself?
I don't know when it will be that I am able to take over the mortgage but I would like to get it down as much as possible and have no idea if I'm doing the right things or not so ay help would be great!

South_coast

I would have thought that lower repayments would be the best thing for affordability checks, so I would hazard a guess that what you're doing currently is the best plan?

Bargainhunter30

With Nationwide you can usually choose online if you want to reduce your term or payments. I wouldn't have thought it wouldn't make much difference on remortgage though, previous payments don't seem to matter. With our remortgage it was all about our income and an expected level of expenses (even though we are low spenders). We had to increase the term that we'd just reduced by several years to fit affordability checks.

LadyWithAPlan

I think just keep making the payments  as you are at the £300 no matter what they say you owe as it will  be equal  next April when you have to fix again -  they will look at where the principal is anyway as the OPs will have paid that down if you have kept the payments the same . I think you are doing great and the more OPs now will make next year hopefully easier as who knows what rates will be doing!

I know some people on here are happy to have the lower repayment amount  (vs term lowered) as if things get difficult but it does sound like you already had a v difficult patch and are on the way up.

Beki88

Update to this and sort of re-asking the same question. As per my divorce agreement I tried the soft check again this year and to my surprise it came back as an accept! Went through the application expecting to be denied - which technically I was but a human looked at it and fully accepted the application which means the ex is off the mortgage and it's just in my name now!

Due to the increase on interest my payments are now higher, but I have worked out for the next 16 months I can probably afford to overpay an extra £500 a month (I can overpay by £536 per month without triggering an ERC). Once my son leaves college it won't be as much but I'm hoping I can still overpay but definitely not £500 a month maybe only £100 but will know closer to the time what my finances are like. Now this is where asking the same question comes into it. And I'm not sure if I understand the guides on here correctly as the advice seemed to be contradicted on the 'Don't shorten your mortgage term if you can overpay' blog which is why I'm checking again. The more I read the more confused I'm getting about what to do.

I have now signed up to a 5 year deal, which runs until April 2028, payments are £279.93 a month.
For overpaying with Nationwide I have a couple of options as mentioned previously:

"We calculate the interest on your mortgage daily so all overpayments will reduce the interest you pay the following day.

Option1: For overpayments of less than £500 per month: We'll reduce your minimum monthly payments at the next natural recalculation point, such as an interest rate change or product expiry.

Option 2: For overpayments of £500 or more per month: We'll automatically reduce your minimum monthly payments the following month."

Option 3: I can also choose to shorten the term if it's £500 or more.

As I say my plan is to overpay for the next 16 months. Now my understanding is I can shorten the term as per option 3, BUT that makes my monthly payments higher? Which I want to avoid doing due to the uncertainty of where I will be financially in 16 months. So I think I want to avoid this option but I'm not entirely sure? 

If I go with option 2 and the minimum monthly payment is reduced, I will still keep the payment at £279.93 plus the £500 extra (until I have to reduce to avoid triggering the ERC). I assume this will still help me reduce the interest paid overall and pay it off faster, whilst also giving me a bit of flexibility? So say that if in 16 months I can't afford the £500 but can still pay the £279.93 it's still a small overpayment as the monthly payment will still be reduced from what it was originally? Would that be right? Or am I completely getting it all mixed up? 

According to the calculator making a £500 a month overpayment (obviously assumes I make that all the way through to the end which won't be the case):

Overpayment saving:

(in interest alone) £17,790

Debt cleared: 15 years and 4 months earlier

So even if I can only do it for 16 months it will still have a big impact. I just want to try and get as much paid off and save as much interest as possible whilst we have the spare money without putting myself into a position that I can't afford it in the future if that makes sense? Really sorry this is a long post. I have problems with my thinking due to my disabilities so trying to explain as best as I can. Thank you for reading and any advice.

South_coast

I would make your monthly overpayments £499.99, so that they are less than £500 and it doesn't do anything to reduce the contracted amount. If your contracted payment gets reduced by say £10 but you keep paying the original amount, that £10 becomes part of your overpayment and eats into your allowance faster. It's a good option if you're struggling to afford the minimum payment, but not if you're already in touching distance of hitting the overpayment limit - in that case, you want to do everything you can to keep your contracted payment where it is. Just be aware that when your fixed deal ends, they'll do the recalculation then based on your remaining term and balance and the payments will definitely go down (at which point depending on how things are going it might be worth discussing formally reducing the term with them, which would make your payments higher but give you an increased fixed bill each month).

Good luck with your plans x

WuLiao

South_coast said:

I would make your monthly overpayments £499.99, so that they are less than £500 and it doesn't do anything to reduce the contracted amount. If your contracted payment gets reduced by say £10 but you keep paying the original amount, that £10 becomes part of your overpayment and eats into your allowance faster.

For both my mortgages, maximum overpayment is based on a percentage of the principal at the statement date, rather than a percentage of the monthly repayment value, and reduces every year. Thus picking Option 1 or Option 2 wouldn't make any difference to the ceiling value I could overpay without triggering a charge.

If @Beki88's works in a similar way, then the second option is the most flexible when preparing for lean times, but while following the @South_coast's suggestion above, if there's enough warning that lean times are coming, a single overpayment of £500.01 would then reset the monthly payments to a lower value to make the reduced income easier to weather.

EDIT: just to add, it may be worth giving Nationwide a call to confirm exactly what you intend to do and ensure that the overpayments are treated as you intend.

Beki88

Thank you both for the replies. I can overpay by a maximum of £6440 per year (10% of original mortgage) which works out around £536 per month. My thinking was as I'm getting close to the limit I reduce the overpayment so it doesn't take me over and trigger charges. I can potentially put that extra to one side in a saving account (depends how much I have already by then as anything over £6k in savings reduces my universal credit). I can set which option I want overpayments to do via my online mortgage manager so I just change it there if needed.
So the second option should work well provided I keep an eye on it. I just wasn't sure whether it gives similar results to changing term in regards to saving interest. I want to do the best option for saving interest but also giving me a bit of movement in lean times. If that's option 2 then that's great. Thanks again.